Welcome to zero. I'm Akshatrati this week rights representations and repercussions. When it comes to fossil fuel companies and climate change, it often becomes a conversation about us versus them, the people versus the corporation, planet versus profits. Look, it's not surprising given the fossil fuel industry's track record on climate action, but it doesn't have to be that way if the owners of those companies, the holders of capital, use the immense power they have over corporations.
Shareholders have so much power that has been badly under exploited. Today there's just power sitting on the table.
This is Bryn O'Brien, executive director of the Australasian Center for Corporate Responsibility. Companies are core units of capitalism, and Brinn makes the case that it's possible to harness the forces of capitalism to be a solution for tackling climate change rather than continuing to worsen it. And Britt has
shown it can be done. Recently, ACCR convinced the Japanese company Nippon Steel to start investing in new low carbon manufacturing, and it even got the Australian company BHP to set a date to retire a coal mine, stopping roughly six hundred million tons of carbon dioxide from entering the atmosphere. Accr's strategy is to engage with companies. It starts simply with sitting down with the company and talking it through.
Now that might sound simplistic. It's one reason why shareholder engagement sometimes is criticized for being too conciliatory, even ineffective, But Brinn says that if companies don't change just with dialogue, then ACCR has other tactics.
Engagement that achieves results always has the credit threat of escalation.
The ultimate escalation is for an investor to divest, that is, to sell off their shares in the company. There's a movement that's been growing to try and get big owners of capital to divest from fossil fuel companies because those companies aren't changing fast enough. This is what groups like Stop the Money Pipeline and Fossil Free want big shareholders to do. And yet despite the movement, fossil fuel companies continue to make record profits and make some shareholders very happy.
When I was in Australia this summer, I wanted to talk to Brinn about her philosophy of engagement versus divestment, Why shareholder activism is key to cutting real world emissions and what happens when you have to make good on a threat. So we're going to talk a lot about shareholder activism, and that is active engagement with polluting companies
through owning their shares rather than divestment. The question of engagement versus di investment is the kind of decision that every investor who understands climate change and wants to mitigate climate change while making an economic return has to grapple with. So what's your case for engagement and against the investment?
Our objective is to seek changes to company strategy for the companies and our portfolio to reduce real world emissions in line with science for the benefit of shareholders. That change that we want to see to company strategy is possible to request and to push for using the rights.
That shareholders have.
So those rights include filing shareholder resolutions. It includes having a say in who is on the board of a company by voting on director elections or nominating directors. Those are the.
Leavers that are available if you're.
A shareholder in a company to seek changes to the company's behavior, So that might be to seek a company not pursuing a fossil fuels expansion project, or it might be to seek a company using their political influence to transition our economies.
Those rights are.
Only available to those around the table. They're only available to shareholders, So if you divest, then you abandon those rights. So you would want to be very very sure that if your objective is to seek real world emissions reductions, that if you choose to divest, you have gone through a thorough process of exercising and exploiting all of the rights that you have. In my experience, there's effective engagement, engagement that achieves results, and then there's ineffective engagement. And
the difference between those two things is effective engagement. Engagement that achieves results always has the credible threat of escalation through the use of formal shareholder rights. So going and having a conversation with a company and trying to persuade them through your advocacy alone without that threat of either voting at a company annual general meeting or filing a shareholder resolution or nominating directors that without that threat, results are not achieved.
But there is an ultimate threat, which is after trying all those things. If the company does not do what you think they should be doing, the threat of escalation could be as high as actually divesting because it's just not working. And there is a case for divestment too, which is if a large investor diverse and makes the case for other shareholders to divest, then the stock price
of the company can fall, and can fall drastically. When the stock price falls, the company may not have as much ability to is money in the market as it did previously. And so why is that not seen as an option in the threat of escalating change that you want from companies.
So I think it's always an option, But I'm not sure that we have evidence to date of a divestment campaign getting so much momentum that it actually results in a material change to stock price. We do have evidence that poor company decision making around transition risk has had effect on stock prices, but we just haven't seen the evidence from divestment. And I think the additional hurdle, or the additional thing that we're looking for is those real
world emissions reductions. And we do have some examples of where well executed shareholder strategy has resulted in quantifiable, real world emissions reductions.
One of the big things Brinn and her organization were involved in was replacing some of the members on the board of Australia's largest utility AGL. It used to stand for Australian Gas Light Company when it was founded in eighteen thirty seven. Today it is Australia's largest greenhouse gasimeter. ACCR got involved in trying to reform AGL in twenty fifteen. It filed a shareholder resolution the kind of thing we've been talking about, that asked the company to disclose its
climate plans. How is AGL going to run a thriving business relying on so much coal and gas power generation when the world is moving on to cleaner sources and fossil fuels are becoming more expensive. That shareholder resolution was voted on at the company's annual general meeting. Every publicly
traded company has one of these. It's a whole corporate jamboree with lots of men in suits talking, which slide shows, of course, in short, a very important event in capitalism, and ACCR got five percent of other shareholders to agree that AGL should douse how it's going to make money in a warming world? Five percent was a good start, but it wasn't going to change anything. The story picks up in twenty twenty one.
So things really started to heat up when in March twenty twenty one AGL after really fierce contests around their strategy, including the exit of their former CEO after Australian politicians attacked him in the media for wanting to bring forward cold closure dates. They appointed a new CEO and they decided that what they were going to do was de merge the business. Demerge it into a kind of business of the future and a thermal powered coal power generation business.
Basically just splitting the company into two parts.
That's right, and they were both planned to be listed entities. So if you held shares in AGL, you were going to end up with shares in the good company and shares in the coal company.
Well, at this point, if you did have a good company and a bad company, isn't it a good thing for investors who are climate milanded to invest in the good company and those who don't want coal assets can then divest from the bad company.
Well that does nothing about the emissions. That's I guess the core problem with that.
This is a genuine question. There is no clear cut answer. It depends on your investing ideology. You could make the climate case both ways. There was a chance that one of the agal companies continue to run its coal plants for decades that would generate more emissions. Also, just looking at the financial numbers, Australia's stock market was having a great run, but the value of AGL was falling.
And ACCR filed a shareholder resolution calling on the company to set Parasitaligne targets for both the the future company, the business of the future and for the coal company. And of course that was going to be a pretty difficult thing for the company to do.
That actually got a majority.
Then in early twenty twenty two, something really interesting happens, which is that a takeover bid is made for the company by Brookfield along with Grock Ventures. Grock Ventures being the private investment vehicle of Australian tech billionaire Mike cannon Brooks.
Mike Cannon Brooks started the company at Lassian, which makes project management software like Trello. Brookfield is a Canadian asset management firm and it manages around eight hundred and fifty billion dollars. So when Brin talks about shareholder engagement. This
is the scale of investors she's talking about. The pitch that cannon Brooks and Brookfield bring to agl's shareholders is basically, let us run the company with a plan to decarbonize its assets and invest in renewables lots of capsm Drama follows that bid is offered, it's rejected, not once.
But twice.
Brookfield walks away. Mike cannon Brooks.
Does not.
Grock Ventures, undeterred by Brookfield walking away, decide to buy a stake in the company that gives them over eleven percent of voting rights, and that's in advance of the de merger. Going to a vote to demerge a company, the board requires the support of seventy five percent, so a special majority of votes cast at the company meeting to be cast in favor of the proposal.
So seventy five percent of the board needs to vote in favor.
No a vote of shareholders, but it's seventy five percent of the votes are cast on the day, so things were looking.
Pretty shaky for the board.
We did have some Australian asset owners coming out and saying, look, we reject this to merger we're going to vote against it, because you can't run from climate risk if you're the kind of investor that we are. That ultimately we're a long term investor, and this is going to catch up with us, and we think it's in the company's interest, but in our interests as a diversified owner of stocks. So the merger is withdrawn because the company can see
that it's on shaky ground, it's unlikely to win. You have immediate resignation of one board director and then announced kind of rolling resignations of others, including the chair and the CEO, and a kind of interim committee is appointed and they go on a search for other directors, and with their eleven and a half percent stake in the company, Grock Ventures nominate for directors and the company says to one of them, Okay, we like the look of you.
We'll support your nomination. But to all of the other three they say no, and so then we end up in a contested AGM. And this is where ACCR, of course played a role. We spoke to all of the independent directors, we spoke to all the company directors, and we formed the view that all of these independent directors were worthy of election and all of them were elected.
So this is a huge deal.
It's the first time in the Stratian corporate history that the board of an organization, again Australia's largest polluter, has been totally transformed by active as shareholding with a climate focus.
That's a real change. But what does that do to emissions?
So during all of this, this board did, under this pressure, bring forward the date of closure of one of its major coal generation assets by decade and so the forecast emissions that will be avoided by that decision alone is about two hundred million tons of CO two equivalent.
Now, that happened in September twenty twenty two. Of course, one other major thing happened between the AGM in May twenty twenty two and this decision in September. There was a change in the government. There was an Australian election that voted in a Labor government with a huge brandate
to independence, who were very keen on climate action. So how can you differentiate between what was a political change where Labor government was clearly interested in more renewables than AGL saw that versus what happened at the board level.
So I think the environment in which AGL could make these decisions. Was markedly changed. But I really don't think that the leadership of the company wanted to do it, and so it did require that relentless pressure. And the evidence that they didn't want to do it is that they were still pursuing the de merger. Right, So the shareholder pressure and the ongoing shareholder pressure, I mean, it's
still necessary. AGL doesn't have a one point five degree aligned pathway yet, so there's absolutely still work to do. But that shareholder pressure was absolutely crucial in saying company strategy changed.
By the way in twenty twenty two, after AGL announced that it would close its most polluting coal facility in twenty thirty five, its share price rose for the first time in a long time. Another company that accr to con is the Swiss giant Glencore. It's an enormous mining company and ninety percent of its scope one, two and three emissions are related to coal. Coal also makes up a huge amount of its income. More than half of its profits nearly eighteen billion dollars last year came from coal.
After a banner year of profits due to high fossil fuel prices caused by the war in Ukraine. In twenty twenty one, Glencore issued a pledge. It said that it will lower its emissions by fifty percent relative to its twenty nineteen baseline by twenty thirty five. Yes, that's a lot of years. But basically ACCR, which is an owner of Glencore shares, did not like those numbers. So ACCR
filed a shareholder resolution. It said, it is unclear how our companies planned thermal coal production aligns with the global demand for thermal coal under a one point five degree Celsius scenario. And you brought a shareholder resolution in December twenty twenty two asking the company to do.
What to disclose how its thermal coal forward production pathway aligns with the Paris Agreement. So glen Core is a company that kind of wriggled out of investor scrutiny for a long time. It was saying really nice things about its decarbonization adjectives. When you actually look at if you model the thermal coal production pathway, it was still expansion going on. There was We're absolutely not aligned. There's still
absolutely not aligned. So we brought the shareholder resolution in December twenty twenty two, but that was already after a very long period of engagement.
Accr's resolution asked for glen Core to prepare a climate action plan, which essentially boiled down to okay, so you want to continue producing coal, How exactly will this work with your claim to lower emissions? And aren't you putting the world of track on its climate goals? Alongside ACCR were asset managers who controlled two point two trillion dollars. On the day of the vote, nearly thirty percent of investors agreed with ACCR. Yes, Glencore, you should explain how
exactly you will do this. This is an achievement ACCR is proud of, but the result is not binding on Glencore. It's just a request. And at the AGM you got thirty percent of the investors voting against glen Core's climate plans, twenty nine percent voting to make Glencore disclose more information on its climate plans. Again, non binding shareholder resolution. What changed does that bring?
Well?
That is ongoing work, I guess. In the lead up to filing actually was where there was some change that was made. So before we went ahead with the filing, Glencore made the decision to drop the valeria Greenfield's project, which is absolutely huge in terms of emissions almost a billion tons.
One billion tons. Valeria was a coal mind that Glencore had planned to build in Australia. When the company announced that it won't build that mine, it cited its own net zero commitments.
So it's impossible to attribute this to any one particular strategy or any one particular force. But as to whether I think pressure from its shareholders, the threat of escalation, real escalation by its shareholders contributed to that decision, or the environment which was made, absolutely.
I had to know what these confrontations sound like. So after the break, I asked Brinn to challenge the Zero Podcast Corporation and try to get us to change our polluting waste.
The Zero Podcast Corporation doesn't just interview the people behind climate solutions. We are a climate solution. We're always innovating and inspiring, bringing ideas and jobs into your neighborhood, your home, into your dresser drawers and your earbuds and your earmos thoughts, and we want to keep going to be the podcast corporation for the next century. So at Zero, we've committed to not just reaching net zero emissions, but net net zero zero emissions, so net zero it's not zero zero.
If the zero podcast Corporation we're publicly traded and not making good on that netnet zero zero goal, Britain and her group might want to get involved. I asked her to tell me how exactly that engagement might go. Let's just go through the basics of what it is that a shareholder can actually do to change a company. So say you're a shareholder, I am the company. You're annoyed by something I am doing. What do you do?
First?
I request a meeting with you to discuss the thing that I'm annoyed about, and at that meeting, I tell you what I'm annoyed about, and if it's not already known to you because of who I am, that I might escalate using my formal rights. Then I tell you that if you don't change this, I'm considering using my rights as a shareholder to force this issue into the public.
Well, thank you for coming. It was a pleasant meeting. But you're an it's it bitsy owner of shares. You might try what you want. I'm going to continue what I do.
You may do that, and then I would come good on my threat. It depends what I've threatened. There are a few things that a shareholder can threatened to do. You generally start with, well, I'm going to threaten to vote my shares against you on some item on the ballot at your AGM. And maybe I'm going to threaten to put an item on the ballot for a vote at your AGM about the thing that I'm concerned about.
And if I do that, maybe I am going to call on other investors to make that request alongside me. So I might have a three trillion dollar coalition that files a shareholder resolution that says, here's the thing that we are concerned about. We would like to take a vote of all shareholders to see who else is concerned about this thing.
Oh now, these annual General meetings are kind of the place where I will tell the world what great things I'm doing and why all the dividends we are paying out are making you the shareholders richer. And you know, these people who are a minority are going to make some noise about changing things here, but look, we make profits and we deliver dividends. Don't listen to them. Don't vote for that stuff because it's going to cut your
dividends off. I think that will be a pretty compelling case for people who are investing in my company to want to make returns.
It might be, But say you get a twenty or thirty percent vote of your shareholders against you, so for my resolution, that might be embarrassing for you. You might be a company director that's looking to protect their reputation, that's looking to have a reputation of being responsive to shareholder concerns. If you get a twenty five percent vote in some jurisdictions, like in the UK, then you're actually required under the Corporate Governance Code to consult with your
shareholders about that vote. So you might have to go and have some groveling conversations. But as to whether you'll be forced to address my concern, the answer is no.
Well that's good, right, I can continue to do what I want. So what power do you have after that?
So even if in most yuris times you get fifty percent of the vote, so a majority on a shareholder resolution, it's generally not binding. So in some places you can bind a company by a special majority, so two thirds or a seventy five percent majority of shareholders, and you require that level of majority to for example, a mend a company constitution which will bind the directors. But if you get a non binding vote, then you can ignore
it if you like. I would say, look, we are getting to a stage where there are some companies that will ignore non binding majority votes, but there will be consequences for that. So that's what we had at AGL, and you know, a half the board got renewed. So
so that brings me to two. I guess another set of rights, and that is the right of voting, predeclaring, campaigning on binding votes which fall into two categories, votes put by management, and then votes on director elections where directors are nominated by shareholders.
Oh so my bosses, right, I'm the chief exec But yes I do have bosses, and they're the board of directors. So you're going to do what with my board?
I might if I am concerned enough about the direction of your strategy, then I note that while you have a role in developing and executing strategy, your board has a role in overseeing it, and ultimately the buck stops with them. So if I think that they're doing a poor job of overseeing your strategy and that that is undermining my interest as a shareholder, so I'm worried about climate change. I see it as material risk to my portfolio over a certain time horizon. If I'm concerned enough,
I might seek to eye. I either remove directors from your board by campaigning for boats against them, or I might nominate alternative directors to your board who have capability and motivation to see the company strategy change.
Well, good luck to you. You've got a few of my board members change, but majority of them are still my friends and they will let me do what I want to do.
What next, Look, it depends how much money I've got. But say I've got a big pool of capital and you're a medium sized company, So I might buy a major stake in the company. I might make it takeover bid. And then I guess you have the opportunity to decide whether I'm offering a fair price. And if you decide that I'm offering a fair price, you might ask your shareholders whether they agree.
The thing that Brent did not do to the Zero Podcast Corporation is sue us. This is something SECR is doing right now to an oil and gas company called Santos. Talk me through why a lawsuit is the rate move at this.
Point under Australian law. We've got corporations law and consumer law, and there's provisions in both of those acts that prohibit misleading or deceptive conduct. Our assessment of the plans that Santos released in twenty twenty in relation to its net zero strategy, its transition strategy, is that there were a bunch of grounds that were misleading or deceptive. We were not able to get those matters addressed in private conversations.
Shareholder resolutions are poorly suited to these kind of legal questions of interpretations of words, so we decided that what we allege are the misrepresentations were serious enough to ask a court if they agree with us. We think that shareholders, of course, have an interest in reliable, credible, accurate information.
They're making major decisions, they are allocating their beneficiaries capital on the basis of information that's disclosed to the market, so we have a real interest in ensuring the integrity of that information. We allege that Santos's information did not meet that standard in a couple of areas, and so we're still pursuing the legal strategy there.
Santos said it is defending accr's allegations and that it is committed to transparent, accurate and compliant reporting. Now, oil and gas companies have had not very much credibility on climate issues, to put it mildly, and so people look at their climate plans and they go, well, of course they're lying. Well, of course they're not green enough. What would you expect. What's your response to that?
Well, it's a curious response for institutions that have a fiduciary duty to care about this, that actually have to make decisions about how they're allocating capital, and they need to be confident that the information that they're getting is accurate. So I think we do absolutely see a cynicism about the information that investors are getting from oil and gas companies.
But that's really worrying to us. That's another one of the reasons that we have asked the court to intervene in this matter to make an assessment of whether the statements meet the legal standard. It's actually it's a world first case in that it is going to the veracity of a company's net zero plan.
But it's actually really orthodox law, like.
Misleading and deceptive conduct, like basic trade practices, basic corporation's law.
And it's a rich and well established area of law.
So we're still in litigation and we're hoping to have an outcome within the next twelve months, but we need to wait and see.
I've always been struck by the fact that if a company were to make up its financial accounts, it could get into serious trouble. It can have its leaders put in jail, put huge fines on the company disparred from some activities of governments have control over those, but when it comes to carbon accounting, which is also a form of accounting that matters, there are almost no punishments available.
It's kind of perverse, right that this is something that is so material. Look, I think that we have seen and when we've been pushing for kind of climate materiality assessments to be included in financial accounts, companies haven't been responsive to that to date. But really this is absolutely material financial risk. The law always lags. The law will catch up, this is inevitable, but it hasn't caught up yet.
So we are seeing in Australia, in addition to our case, we're seeing hugely increased attention from regulators and we really well come that, but there's still.
A lot of greenwashing out there. It's fair to say.
Now, are you worried that when you pursue these cases sometimes companies might choose to leave Australia al together. This is something that's happened in Europe, for example, where Shell has been under constant criticism for not having a climate plan or not following it through, and there were legal cases filed. Eventually Shell just decided to leave the Netherlands and choose London as it's well, it's complicated because it's two headquarters, and then it became one.
Well I hear that being asked currently if they all leave London and go list in New York right, And I think that conversation is being had about Glencore as well. You know, can you forum shop? Can you run from climate related legal scrutiny. Look, it's not something that we expect the companies in our Australian folio to be actively considering. We would be very surprised if they were. But I'm not going to say it's not an issue like because it patently is.
We ask Glenn Core about this and the company declined to comment. We do live in a two track world where on the one side we are seeing progress the kind of work that you are doing in eCCr now would be much much harder ten years ago and did not exist twenty years ago. But of course, at the same time, climate impacts keep getting worse, emissions haven't declined. What keeps you going.
The changes that we want to see in the world are not just possible, but they're inevitable. So, for example, in the oil and gas sector, we want to prevent new capital expenditure or new final investment decisions on new and expanded and extended projects. That is what we need to see in the world. That will happen. It's our challenge to to accelerate that, and we certainly are seeing
a great deal more interest. I think as our activities become better known, as the emission's impacts are better able to be quantified, as we get clearer and crunchier on our objectives, which really are those real world emissions outcomes, which are so hard to achieve, it so essential to just the survival of all life on Earth, And you know,
I get pretty mad about this stuff as well. And rage, as I sometimes say, is a renewable resource, and I mean it's motivating work because we just have to accelerate it, and shareholders have so much power that has been badly under exploited. Today there's just power sitting on the table, so it's really motivating for us to try to assist shareholders to use it effectively.
Well, this sounds like a David versus Goliath fight and I'm here for it. Thank you, Thanks very much. I have a book coming out in October, if you haven't heard already, it's called Climate Capitalism, and the title alone should tell you that I think that capitalism can be changed to work to fight climate change rather than exacerbate it. In fact, I have tons of examples of exactly how
to do it. And the reason that I make the case is that there is power in the hands of capital owners, the shareholders that Brin and many others are activating to change the companies that are causing these emissions. Those shareholders, capital owners, or members. They are all individuals and their minds can be changed. Or if they don't change their minds, there are shareholder activists like ACCR who will get them kicked off their boards. Thanks so much
for listening to Zero. If you liked this episode, please take a moment to rate and review it. Subscribe on Apple Podcasts or Spotify send it to a friend or someone who hates capitalists. Get in touch at Zero Pod at Bloomberg dot Net. Zero's producer is Oscar Boyd and senior producer is Christine driscoll Ar. Theme music is composed by wonder Lee. Special thanks this week to David Stringer and kirabindrip I am Akshatrati. Back next week.